Gorshkov price settled at $2.3 billion

The price of aircraft carrier Gorshkov has been finally settled at US $2.3 billion.

Notwithstanding some bitterness, the Indian side finally agreed to pay this price after being told by the Prime Minister's Office that the high level of friendship with Russia has to be maintained and an agreement had to be worked out, preferably before Manmohan Singh left for Moscow Dec 6.

That was indeed done on the morning of Dec 4, Navy Day, with a visiting Russian delegation, according to the latest issue of India Strategic defence magazine. Defence ministry officials refused to comment on the development.

The Indian side had asked for some additional onboard equipment at least as part of the increased price, but within that price, which the Russians agreed to. Details of that were still being finalized with the Russians 10 days later in the Indian capital.

The original agreement with the Russians signed in 2004 was for $974 million for the carrier's refurbishment and upgrade, Gorshkov itself being offered free of cost. The delivery was then set for 2008.

In 2007, Rosoboronexport, the sole Russian agency responsible for selling and exporting weapon systems, indicated a delay in the delivery of the carrier. In 2008, it demanded an additional $1.2 billion in writing saying it had made mistakes in calculations and that it had to many more miles of wiring for instance than it had originally thought.

After that, during the negotiations to settle the dispute arising from this new demand, Rosoboronexport representatives mentioned varying figures asking for still more money, taking the cost of the carrier to $2.9 billion.

Rising prices of oil, which is consumed during the trials, was among the reasons quoted for this second revision of the Gorshkov cost.

The Indian side had agreed to consider the written request for additional $1.2 billion but declined to entertain anything above that.

Well placed sources from Moscow told India Strategic that the Russian government asked Rosoboronexport to come down to $2.4 billion and it also submitted a letter in this regard to the Indian Navy's negotiating team.

Finally, India agreed to pay a total of $2.3 billion but with a request for some additional equipment, and the Russians agreed to that.

India has also agreed for delivery of the carrier, which the Navy urgently needs, by 2012 without any penalty.

It may be noted that the Russian government paid the Sevmash shipyard, which is doing the repair work on Gorshkov, $250 million as credit to ensure that the work did not stop. India had paid $600 million at the time of the contract, and another $122 million in August this year.

India has already paid more than $600 million for 16 Mig 29K carrier borne aircraft, the first four of which have been delivered at the INS Hansa, the naval base in Goa.

The Indian Navy has asked for 29 more Mig 29Ks, the proposal for which has been cleared by the government. An order is likely to be placed soon.

These deals, although related to the Gorshkov, are separate and the Mig 29K aircraft will operate from both the Gorshkov and India's first indigenous aircraft carrier now under construction at the Kochi shipyard in southern India.

There has been no official confirmation of the price from either side but Russian sources said that the agreed price was "close to what the Indian Navy wanted".

The Indian prime minister's delegation did announce though from Moscow that the agreement over the price had been reached.

"We do not know if the two sides shared some vodka over the deal, but there is goodwill between the negotiators on both the sides following the conclusion of the price," said an informed source.